What to Know About New Jersey Transit Commuter Tax Benefits (Updated Oct 2020)

Originally Published: February 22nd, 2020

Every day, thousands of workers across New Jersey travel to work, whether it be by car, bus or train.

A new pre-tax benefit signed into law in March 2019, however, will force employers to provide transportation benefits to employees, subject to certain conditions.

What Is The New Jersey Commuter Tax Benefits Law?

The New Jersey Commuter Tax Benefits Law (Senate Bill No. 1567) is a new law that will force employers to offer pre-tax transportation fringe benefits to employees if they employ more than twenty people.

State Governor Phil Murphy signed the bill into law on March 1, 2019, and it will go into effect from March 1, 2020, or perhaps slightly earlier.

With the passing of the new law, New Jersey became the first state in the Union to compel employers of a specific size to offer pre-tax transportation fringe benefits to all employees.

The purpose of the bill, according to a press release from the Governor’s office, is to reduce the financial burden that employees face during their daily commute to work.

The new bill will compel employers to provide capped benefits covering the costs of highway travel, public transit, and parking for employees.

Which Types Of Businesses Are Subject To The New Law?

Every business or organization that employs over twenty people in the state is subject to the new law, with two exceptions: federal government-level employers and employers already covered by existing collective bargaining agreements.

In short, private firms, non-profits, local governmental employers, and charities will all need to abide by the new rules. At this stage, there appear to be no other exceptions.

Employers with fewer than twenty employees do not have to abide by the new rules.

Furthermore, organizations with greater than twenty employees with union representation do not have to comply with the new regulations set out in the New Jersey Transit Commuter Tax Benefits bill automatically.

Current rules state that they can keep their existing collective bargaining agreements, provided that they were in effect on or before March 1, 2019, until they expire.

If collective bargaining negotiations took place after that date, then organizations must include a discussion of Transit Benefits in their talks.

What Benefits Do Employees Get From The New Law?

The new law states that employers must offer pre-tax transportation benefits to employees covering the following areas (consistent with Section 132(f)(1) of the IRS Code).

These include:

• Commuter highway vehicle benefits
• Transit passes
• Qualified parking

The new benefit is a “pre-tax” benefit. Status as a pre-tax benefit means that employers can deduct the perk from their employees’ pre-tax earnings – only then applying the federally-mandated tax to the remainder.

The bill, therefore, provides employees with tax relief.

The current allowable limits for benefits levels under federal law is $265 per month for transit passes and commuter highway vehicle combined and an additional $265 per month for qualified parking.

These figures, however, are subject to change from March 2020 and subsequent years.

What Are The Penalties For Non-Compliant Businesses?

As the law stands, the Labour Commissioner responsible for ensuring that businesses comply with the new law can issue citations for companies that do not follow the rules.

The fines for those who do not offer their employees access to pre-tax transportation benefits are:

1. A penalty of between $100 and $250 for the first instance of non-compliance. The penalty is only imposed if the employer does not comply with the law within 90 days of the original citation
2. A further penalty of $250 for every 30 days (after the initial 90 days) that the employer does not comply with the citation

The state, therefore, strongly encourages businesses to comply with the law by imposing regular fines on those that don’t.

Currently, the law states that the Labor Commissioner cannot impose penalties more than once every 30 days.

How Long Do Companies In New Jersey Have To Comply With The New Law?

The status of the law is as “inoperative,” meaning that firms face no penalties for non-compliance with the law.

That, however, will change from March 1, 2020 – or earlier.

Companies may have less time than they expect to comply with the new pre-tax fringe transportation benefits.

While the latest that the new rules can come into effect is March 1, they could come into force earlier at the discretion of the New Jersey Labor Commissions.

Companies should apply the new fringe benefits in a manner consistent with their existing practices for similar perks.

The Labor Commissioner has not yet implemented these new benefits rules (February 13, 2020), but that will change soon.

How Should Businesses Prepare For The New Jersey Transit Benefits?

The state legislature passed the New Jersey Transit Commuter Benefit into law in March 2019, but it won’t go into force until March 2020.

This delay gives employers vital time to prepare their HR teams and administrative systems for the new rules.

Our advice is for firms to do their research on the new benefit program requirements.

You need to ensure that you understand precisely how to apply these new rules to your employee compensation calculations.

Legal authorities recommend that you take steps now to build a Transit Benefit program ready for launch when the rules come into force.

Using third-party vendors specializing in these services can give you a head start will allow you to comply with the new law from March 1, 2020.

Educating yourself on the new law should also be a priority. Having the right knowledge will let you respond to employee queries about the benefits.

If you’re unsure at any point, then again, seek advice from third-party employee benefits solutions companies.

Consultants will answer specifics not covered here in this article.

The new benefit is a tool that you can use to attract and retain employees.

You may, therefore, want to engage in a publicity campaign advising current and prospective employees that you now offer the perk.

Finally, if you manage or own an affected company, then you must monitor the New Jersey state’s website for updates or revisions.

The law, for instance, may come into force earlier than expected. Benefits caps may also change.

If you have any questions about implementing these benefits in your business, contact us at ABS.